A Complexity Perspective on Financial Markets and Economic Systems: Identifying the Signals of Evolution
The seminar will essentially present a case for the need for economic and quantitative finance theories to be complemented by complexity and evolutionary frameworks. Such thought process is developed through coherently coupling selected aspects of Gould’s evolutionary theory concepts to the essence of Minsky’s Financial Instability Hypothesis, and quantitatively articulating these through mathematical methods inspired at its core by von Neumann’s automata theory. The foundations of an embryonic Complexity Evolutionary Theory on Financial and Economic Crises (‘CETFEC’) will be presented, and selected results of research that consistently applied such framework – through a range of different and diverse datasets, markets, and business dynamics – will be highlighted. CETFEC characterises financial markets and economies as complex systems, whereby the emergence of financial crises is regarded as the natural consequence of fundamental evolutionary processes that lead relevant agents to adapt to different environmental conditions. As a result, it has a marked distinction that it does not pre-define, categorise or exercise a level of judgement about the behaviour of the agents within the system. CETFEC aims to identify the signals that lead the existence of the necessary conditions for the emergence of crises, rather than trying to predict the timing of crises. Fundamentally it holds that the understanding of the distribution and the diversity of the agents provide essential signals to the resilience of the system.